Generally, putting some oil in the cylinder will boost the compression reading more that 50 psi, if, you have worn compression rings. However, in your case, your tech may be correct in that it may be a valve problem. I don't think that all the damage that was described to you would get you to 200-250 psi. To me that would be a cylinder that was flat, i.e. no compression. There are only a couple of ways to get a firm diagnosis. One is with a fiber optic scope fed down the intake runners to look at the valves and thru the glow plug openings to view the inside of the cylinder. Some shops have this kind of equipment, but I don't know who. The other is just simply to remove the head and eyeball the landscape. Good luck..
1987 BMW 325
[This message has been edited by jeffsr (edited 04-17-2000).]